Once again, all eyes will be on credit quality when large U.S. banks report second-quarter earnings. But just as first-quarter results failed to provide clarity, analysts are expecting to leave earnings season with plenty of outstanding questions about loan losses brought on by the coronavirus recession.

With COVID-19 cases spiking in much of the country, economic activity remains muted. Expanded unemployment benefits are due to expire at the end of July and many businesses are still using funds from their Paycheck Protection Program loans, essentially masking the true level of economic pain.

"As one banker told me, we're still in the eye of the hurricane, and the banks don't know if it's a Cat 1 or Cat 5," said Brett Rabatin, head of bank strategy for The Travillian Group.

Analyst opinions on the level of stress vary wildly. For example, the median estimate for JPMorgan Chase & Co.'s second-quarter results shows net income of $1.18 per share as of July 8, according to data from S&P Global Market Intelligence. The lowest estimate was for earnings of 59 cents per share, and the highest was $2.65 per share, a gap of $2.06 per share. A year ago, the gap between the lowest and highest estimate for JPMorgan's earnings was 30 cents per share.

The divergence in opinion appears to boil down to credit quality expectations and how much loan loss provisioning will weigh on earnings.

"There are pretty broad expectations for provisioning," Rabatin said in an interview. "My thought is, the folks at the higher end of the range are probably going to be more accurate."

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A new accounting standard for large banks, the current expected credit loss model, directs banks to use economic forecasts to set aside reserves based on estimated losses over the life of their loan portfolios. While economic forecasts have improved in the past few weeks and many economists continue to see a near-term recovery, the recent spike in COVID-19 cases in large markets like California, Texas and Florida could lead to more caution. Bankers are allowed to overlay "qualitative" factors in their CECL models, essentially setting aside more provisions than the forecasts would suggest based on the bankers' outlook.

"You have to factor in the fact that the data has gotten less bad. It's still really bad, but we're not at the worst-case," said Michael Rose, an analyst for Raymond James. A July Wall Street Journal survey of more than 60 economists found that 64% predict the recovery will start in the third quarter. Rose expects banks' loan loss provisioning to be higher in the second quarter than it was in the first after excluding the one-time adjustment to adopt CECL, commonly referred to as the "Day 1" build. Ultimately, the credit quality question will not be answered in this round of earnings reports, Rose said.

"I would not be focused on this quarter or even next quarter. I would be focused on next year," he said in an interview.

Rose said he will be paying attention to bank disclosures about the number of borrowers deferring loan payments amid the pandemic. Among the banks that Raymond James covers, the percentage of borrowers deferring payments ranged from 2% to 40%. Rose said analysts will be looking for deferral rates to decline in the second quarter and for commentary that bankers are dealing with deferrals "aggressively." While bankers will not be expected to act on deferrals that borrowers need to survive, they should be looking to rescind forbearance for borrowers who used it as an insurance policy.

Beyond credit quality, Rose expects banks to miss consensus estimates on net interest margin. While he said net interest income might remain adequate, the NIM ratio will look weaker than expected due to an increase in deposits and the influx of PPP loans, which pay interest of just 1% of the loan balance.

With an uncertain credit quality outlook and flagging core earnings metrics, bankers could step up the discussion of expense cuts, Rabatin said. On July 9, Bloomberg News reported that Wells Fargo & Co. was preparing to potentially cut thousands of jobs.

"The two biggest expense buckets are personnel and the branches," Rabatin said. "And I think they need to look at both."